(TCO E) Hanks Company produces a single product. Operating data for the company and its absorption costing income statement for the last year is presented below:
Units in beginning inventory……………………………..0
Units produced………………………………………..9,000
Units sold………………………………………………8,000
Sales…………………………………………………$80,000
Less cost of goods sold:
Beginning inventory………………………………………. 0
Add cost of goods manufactured………………54,000
Goods available for sale………………………….54,000
Less ending inventory………………………………6,000
Cost of goods sold………………………………..48,000
Gross margin……………………………………….32,000
Less selling & admin. expenses………………..28,000
Net operating income…………………………..$ 4,000
Variable manufacturing costs are $4 per unit. Fixed factory overhead totals $18,000 for the year. This overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold.
Required: Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements.
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